What Changed for Digital Nomads in 2026?
The IRS’s tax year 2026 inflation adjustments under the One, Big, Beautiful Bill increased the Foreign Earned Income Exclusion (FEIE) from $130,000 to $132,900. (irs.gov) This means nomads or U.S. citizens living abroad can shield more earnings from U.S. tax if they meet certain requirements.
Eligibility Requirements Remain
To claim FEIE, you must satisfy at least one of two tests for the applicable tax year:
- Bona fide residence test: established residence in a foreign country for an uninterrupted period including an entire tax year.
- Physical presence test: present in one or more foreign countries for at least 330 full days during any 12-month period. This test is calendar day-based.
Also, the foreign country must not be designated as a hostile or excludable sovereign—ensure no treaty or tax code provisions prevent exclusion.
Planning Around the Income Exclusion
- If you anticipate your foreign-earned income will exceed $132,900, consider whether a combination of FEIE and foreign housing exclusion or foreign tax credit will minimize tax liability.
- Use timing strategies: shifting income or deductions depending on when you expect to meet the presence test.
- Keep careful records of travel dates, residence proof, employer contracts or leases—supporting documents are essential.
Example: Remote Worker in SE Asia
Suppose an American consultant works remotely from Thailand for most of the year. They earn $140,000.
- With FEIE at $132,900, they can exclude the bulk, leaving $7,100 subject to U.S. tax.
- Add housing costs above a base amount for the location for further exclusion (partial). If local taxes paid in Thailand, they may also get foreign tax credit.
Beware: Phase-outs, Self-Employment, and Double Tax Treaties
- Self-employed persons must also cover self-employment tax and may not always exclude all income.
- If you work in more than one foreign country or move mid-year, document each leg to establish presence/residency.
- Check U.S. treaties: some may affect shade of housing exclusion or eliminate double taxation.
Practical Checklist for Nomads
- Track days abroad, travel paperwork, lease/rental agreements.
- Hold foreign bank statements, tax receipts showing foreign income and tax paid.
- Timed adjustment of estimated tax payments or withholding if income surpasses exclusion limit.
- Use IRS resources (Interactive Tax Assistant) to test eligibility.
With smarter planning around the $132,900 FEIE cap in 2026, digital nomads can save significantly—if they meet eligibility and maintain documentation.